States’ enacted budgets for fiscal 2017 project moderate general fund spending growth for the seventh consecutive year, according to the fall 2016 edition of “The Fiscal Survey of States.” However, progress since the Great Recession has been slow, and 32 states still spent less in fiscal 2016 than the pre-recession peak in fiscal 2008, adjusted for inflation.

“Financial conditions among the states are uneven,” said National Association of State Budget Officers (NASBO) Executive Director John Hicks.

This variation is because of a number of factors, such as the negative impact of declining oil and gas prices on energy-producing states, differing tax and spending policies, regional economic disparities, and varied changes in population and other demographics.

The study also found that many states are seeing softening state tax collections. General fund revenue growth slowed considerably in fiscal 2016, necessitating mid-year budget reductions in some states. Revenues came in less than budgeted in 25 states in fiscal 2016, and many states reported fiscal 2017 collections coming in below projections so far.

“It is unusual to have back-to-back years with this many revenue shortfalls outside of a recessionary period,” said Hicks.

“In addition to slower revenue growth, states continue to face rising costs in areas such as health care, pensions, education and infrastructure,” said Margaret Kelly, NASBO president and Minnesota state budget director.

Despite these budgetary challenges, most states continue to strengthen their rainy day funds to prepare for the future.

Some key findings from the report include the following:
• General fund revenue growth slowed to 1.8 percent in fiscal 2016, with 25 states ending the year with collections below budget forecast.
• Nineteen states reported net mid-year budget reductions in fiscal 2016, a historically high number outside of a recessionary period.
• So far, 24 states are reporting fiscal 2017 general fund revenues coming in below projections, the highest number of states expecting revenue shortfalls at this time in the fiscal year since 2010.
• States enacted fiscal 2017 budgets that increase general fund spending by 4.3 percent.
• States enacted a mix of tax increases and decreases effective in fiscal 2017.
• While some states tapped reserves, most continue to strengthen rainy day funds, with 29 states increasing these funds in fiscal 2016, and 25 states projecting increases in fiscal 2017.

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